Chrysler reaches labor deals in fight for survival

Monday

The smallest U.S.-based automaker cleared two major hurdles on Sunday in its quest for survival, reaching a concession agreement with the United Auto Workers and winning ratification of its cost-cutting deal with the Canadian Auto Workers.

That leaves only two obstacles standing between Chrysler and up to $6 billion in additional loans from the U.S. government: A partnership deal with Italy's Fiat Group SpA and an agreement to swap equity for debt with banks and hedge funds that hold $6.9 billion in secured Chrysler loans.

Details of the UAW deal weren't disclosed, but the union said it was crafted together with Chrysler, Fiat Group SpA and the U.S. government. That means the cost cuts have been blessed by the Treasury Department, which has been overseeing efforts to restructure Chrysler and its Detroit counterpart, General Motors Corp.

It also means Fiat was heavily involved in negotiations, a sign that the Italian automaker is serious about taking a 20 percent stake in Chrysler in exchange for providing the Auburn Hills, Mich., company with small-car technology.

Chrysler has been living on $4 billion in government loans and may get another $500 million to keep it alive through Thursday's deadline to restructure to the government's satisfaction. If it can't close the final deals, however, no more government money will be made available and the company almost certainly would be auctioned off in pieces under bankruptcy court supervision.

For weeks, it appeared Chrysler might not be able to meet a deadline many in the industry considered impossible. But White House economic adviser Larry Summers said Sunday the Obama administration is holding out hope that Chrysler can avoid bankruptcy court.

And two people briefed on negotiations with Fiat said the companies are close to signing a deal as long as debtholders agree to take equity in the company for a portion of the $6.9 billion they are owed. The people didn't want to be identified because talks have not been made public.

The UAW late Sunday called the concessions painful but said the deal takes advantage of the Obama administration giving Chrysler and its workers a second chance. The administration in February rejected Chrysler's original restructuring plan, saying the company could not stand on its own and had until April 30 to make further cuts and take on Fiat as a partner.

"The provisional agreement provides the framework needed to ensure manufacturing competitiveness and helps to meet the guidelines set forth by the U.S. Treasury Department," Chrysler Vice President of Labor Relations Al Iacobelli said in a statement. "As a result, Chrysler LLC can continue to pursue a partnership with Fiat SpA."

Separately, Canadian Auto Workers President Ken Lewenza said their deal makes labor costs competitive with non-unionized Toyota in Canada. It will save Chrysler about $240 million a year Canadian (US$198 million) even though it doesn't cut base wages or pensions, amounting to the $19 Canadian (US$15) an hour in savings the company was seeking. The agreement eliminates Christmas bonuses, semiprivate hospital room coverage, certain drug fees and a one-time vacation buyout of $3,500 Canadian (US$2,885). It also reduces break times and vacation time.

Meanwhile, debtholders, the company and the Treasury Department remain far apart on terms to swap equity in the company for much of the debt. A counteroffer to the debtholders from the Treasury is expected as early as Monday.

UAW Vice President General Holliefield said in a statement that UAW members and retirees are being asked to make extraordinary sacrifices to help Chrysler become viable.

"In order for the company to have a sustainable future, all stakeholders will have to show the same willingness to contribute to the common good that has been demonstrated repeatedly by our membership," he said.

After rejecting the February plan, the government had said the UAW and Canadian Auto Workers unions must make further concessions, including the UAW taking equity in the company for at least half of a $10.6 billion payment into a union-run trust that will take over retiree health care costs starting next year.

The UAW says its deal "meets the requirements of U.S. Treasury Department loans to the company," and includes changes to the health care trust. Details will be presented to local union officials from across the country on Monday, with voting to wrap up by Wednesday.

"We recognize this has been a long ordeal for active and retired auto workers, and a time of great uncertainty," UAW President Ron Gettelfinger said in a statement. "The patience, resolve and determination of UAW members in these difficult times is extraordinary, and has made it possible for us to reach the agreement we will present to our membership."

Fiat CEO Sergio Marchionne was in the U.S. as talks continued for the automaker to take a 20 percent stake in Chrysler in exchange for its small-car technology. The government has said it would be willing to loan Chrysler up to another $6 billion if it is able to complete its restructuring and ink the deal with Fiat.

Fiat may build the small cars at Chrysler factories in the U.S., but they wouldn't arrive until late 2010 or early 2011, according to industry analysts.

"We're hopeful that the negotiations, which have been proceeding with great energy, are going to conclude successfully," Summers said in an appearance on "Fox News Sunday." ''You never know — with any negotiation — until the very end. There are some issues that have been worked out. There are some issues that remain to be worked out, but it's in everybody's interest to see these negotiations succeed and we're hopeful that they will."

Also Sunday, General Motors Corp., which is living on $15.4 billion in government loans, said it will update its restructuring plan on Monday.

Two people briefed on the plan said GM will scrap its storied Pontiac brand and shutter more factories than the five it said in February it would close. The factories' locations won't be disclosed, said the people, who asked not to be identified because the plan has not been made public.

The plan will come as the company announces an offer to exchange up to $28 billion in GM bond debt for stock in the company.

GM faces a June 1 deadline to restructure or head into Chapter 11 bankruptcy protection.

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